Consider the regression model with a single regressor: Yi =
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Consider the regression model with a single regressor: Yi = b0 + b1Xi + ui . Suppose that the least squares assumptions
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Consider the regression model with a single regressor: Yi = b0 + b1Xi + ui . Suppose that the least squares assumptions in Key Concept 4.3 are satisfied. a. Show that Xi is a valid instrument. That is, show that Key Concept 12.3 is satisfied with Zi = Xi b. Show that the IV regression assumptions in Key Concept 12.4 are satisfied with this choice of Zi . c. Show that the IV estimator constructed using Zi = Xi is identical to the OLS estimator.
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